It wasn’t long before that tricky tax question came up at Prime Ministers’ Questions today.

Tom Harris, MP for Glasgow South, asked David Cameron how it was that a local comic store, Red Hot Comics, employed 7 people and paid “every penny of tax on time”, whereas its main competitor, Amazon UK, brought in revenues of £4.5bn yet paid less than £1m in tax last year.

The Prime Minister didn’t disagree that companies need to pay their fair share in taxes. Which is why, he said, his government had “put in an extra £900m specifically into the Inland Revenue to try and make sure that we do properly get companies and individuals to pay their taxes”.

It’s obviously a serious issue – not only do people who pay their taxes resent doing so when there are individuals and companies who don’t, at great cost to the public purse, but in these times of austerity, every penny counts.

FactCheck looked into how much the government really has devoted to the taxing question.

The analysis

We asked Number 10 for clarification on what the Prime Minister meant.

“We are already reinvesting over £900m in HMRC to bring in around £7bn each year by 2014-15 in additional tax,” came the reply.

It’s worth noting that when pressed, Number 10 said they were “reinvesting”, not “investing”. That would suggest that the money is coming from the HMRC itself.

Indeed, if we take a look at the 2010 Spending Review, which outlined the cuts, it says as much. It said that from April 2011 to April 2015, HMRC would have to reduce its overall spending of £3.7bn by 25 per cent.

Of those savings, “ministers have agreed to reinvest £900m over the four years to combat tax avoidance, evasion and fraud”.

In other words, they’re being asked to implement budget cuts, and of those cuts, some of the money would be given back.

It still meant that even after the £900m was “reinvested”, the net effect was a reduction in the budget of 15 per cent.

The HMRC website went on to say that the £900m would create around 2,500 additional jobs within HMRC’s Enforcement and Compliance area by 2015.

Enforcement and Compliance was the subject of a National Audit Office report earlier this year, so we had a look at that too.

That showed that in 2008, it was forecast to deliver £4.56bn, but by last year, had only delivered £4.32bn.

It also showed that the programme had cut staff by 3,387 by 2008-2009. HMRC estimated that the result of the staff cuts was a drop in the amount collected by Enforcement and Compliance of around £1.1bn gross.

The verdict

It’s disingenuous of Mr Cameron to attempt to claim the government has “put in £900m extra”, when in practical terms, it’s just taken a bit less away.

When we asked the HMRC to explain the give and take in their budgets, they admitted that it was actually “recycled” money.

“Over the course of the Spending Review, HMRC will make savings to reduce spending by 25 per cent in real terms. £900m of those savings will then be recycled into additional work against avoidance, evasion and criminal attack,” the department said.

And when we look at the programme that money has been “reinvested” into, Enforcement and Compliance, it’s worth noting that it’s been hampered by staff cuts (we’ve FactChecked staff cuts before).

Not outright truth evasion, but probably more like truth avoidance on this one.

It’s a pity that your generalisations about London spoil a fair argument. There are millions of decent people living in a changing, vital, challenging and often frustrating environment in London. I come from the North, so I know what I’m comparing what with. There are spivs, crooks and devious, power-hungry politicians who have long failed to understand that their lies/obfuscations/spin/misleading statement, etc have brought them so much distrust and ill-will on behalf of all the people of the UK. Oddly enough, we in London don’t sit there applauding Cameron’s latest piece of disingenuous PR any more than people outside London do. There’s as much poverty here as outside London & plenty of disingenuous politicians & spivvy businessmen outside London as well as here.

I think this is an irrelevance. Individual MP’s are guilty of many misdeeds, but the bizarre ways they are remunerated (expenses on a nod and a wink; special tax privileges; generous pensions) are just a consequence of successive Governments refusing to grasp the nettle of parliamentary pay.

Personally I would prefer that MP’s abide by normal employment practices and receive a more substantial salary for the hours and responsibilities their job entails. But I think it is highly unlikely that making MP’s pay more tax would cause the Government to actually do something about tax avoidance.

The only way to achieve that is democratic accountability (thank you Factcheck Blog) or the introduction of rules that prevent Ministers and senior Civil Servants from profiting from others’ financial good fortune. This last point is the silver bullet. If we blocked the revolving door that transports public servants from Westminster to the Executive/Non-Executive suite, many of the Nation’s problems would be miraculously fixed.

I sympathise with your complaint, but I don’t fully agree with it and really do think it is ‘off topic’ here.

Do you remember the rows about reducing the number of ‘local tax offices’ and the creation of a few Regional Offices armed with big investment in computers and other IT kit? Cameron and the Tories declared against all that Labour Government ‘waste’ that is now paying off so brilliantly. So now they claim it was them ‘wot dune it’.
Turning now to Amazon and Red Hot Comics, I wonder just how much VAT, NIC and employee taxes and business rates are collected by each of these firms? All of those imposts are UK taxes and I strongly suspect – as you do too – that Amazon pays a lot of those.
There’s more. On page 66 of its Annual Report, Amazon declared that 32.2% of its $934 million taxable earnings were paid in US and international taxes. That doesn’t look like tax avoidance either.

Thank you for highlighting this. While Governments habitually dissemble, the deceit is usually a little more sophisticated. I assume Cameron’s advisors felt the stakes made it worth the gamble. The potential prize is to help the powerful and wealthy reduce their tax bills while convincing the restless masses that the opposite is true.

I expect lots more of this sort of guff as Osbourne’s cuts really start to bite, so keep up the good work.

Corporation tax is a tax to be avoided. The tax is one of the reasons we have so many bonuses, dividends and a rush to place projects at the end of a financial year.

When I was in college a Jewish friend told me that companies should always make a loss.I thought that was a strange thing to say until I received a corporation tax bill many years ago and worked hard to halve it.

Corporation Tax taxes successful companies not individuals. If you buy a chair in the tax year is not taxed, you buy it the following year and it’s taxed.
Corporation Tax needs to be set low.

These big companies are doing the right thing for their share holders by minimising their tax liabilities. apart from Facebook these companies employ people who pay tax,ni, taxes on fuel etc.

You don’t like paying tax. We could probably have guessed that, so what’s your point?

Your argument is not specific to Corporation Tax, it is generic. It can be stated simply as “taxes punish success and should be reduced”. Actually, to follow your logic to its natural conclusion, “taxes punish success and therefore should be eradicated.”

The problem with your point is that the vast majority of people in our society (read that as “everyone, including you”) believe that a certain level of taxation is necessary. Taxing failure clearly makes no sense (there would be zero revenues). Therefore, to use your language, we must tax “success”. The only question remains at what rate.

You say Corporation tax needs to be “set low”. How low exactly? Corporate tax rates are already at historically low levels. What Government spending would you cut for a further reduction? Many people would say welfare, foreign aid or Government inefficiency, but that demonstrates a fundamental misunderstanding of the reality. Welfare spending already leaves millions of people on the breadline – should we let them starve in the absence of a buoyant economy, and to hell with the…